# Question 3 which one is true regarding the price cost

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Question 3. Which one is true regarding the price-cost margin formula P - MC P = 1 , 1
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Problems Problem 4: Cournot Competition and Price-cost Margin. The demand for a product is Q = 120 - bP , and marginal cost is MC = 36. The firms play a Cournot game. If there are 2 firms in an industry, then the price in Nash equilibrium is P = 44. What is the Nash equilibrium price if there are 3 firms in the industry? Hint. Use the formula discussed in class, P - MC P = 1 , where n is the number of firms, and μ is the absolute value of the elasticity of demand. Problem 5: Stackelberg Cournot. Two firms play a Stackelberg Cournot game. That is firm 1 chooses q 1 first and firm 2 chooses q 2 second. Demand is q 1 + q 2 = 100 - P . Marginal cost is MC = 30. (a) What is the best response for firm 2 if q 1 = 40? (b) What is the best response formula for firm 2 for any value of q 1 ? (c) Given to answer to part (b), what quantity q 1 should firm 1 choose to maximize profit?
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